RALIAN TRIO TO BEAM
Installed a new 40% dividend policy. in five years and the company has even also been reduced to its lowest level
as the demand from investors would increasingly turn to growth – the debt-heavy days of 2013 to 2016 now becoming a memory.
Herein lies an interesting dynamic between the Australians, with Cutifani’s natural effusiveness coming up against a clearly conservative CFO. “I think I’m going to stick to my guns,” said Pearce when questioned on why the purse strings could not be loosened at Anglo in terms of project growth.
“We have to strike a balance,” he stated. “The market is rewarding strength in the balance sheet. Projects will be considered, but we won’t put the balance sheet at risk. We still have work to do to regain credibility, even in our own organisation,” he said.
“We shouldn’t get too excited,” Pearce added in response to prodding over whether Anglo would press the button on the expansion of its Quellavecco copper mine in Peru.
In an interview with finweek, Cutifani suggested that with careful allocation of capital, Anglo could produce 50% more of the minerals today in the next five years. One potential project is to have De Beers’ Orapa mine in Botswana producing more material through selective brownfield expansion and debottlenecking.
Said Cutifani: “It’s too early to say, but a 10% to 20% improvement in production might be possible. We have to work through the numbers first over the next 12 months; see what the resource and reserve potential is at the mine. That’s where the big opportunities are, where we haven’t tested our mineral endowments fully.”
De Beers’ Venetia and Jwaneng mines would also be tested for incremental production increases while Cutifani said the firm’s 44%-owned Collahuasi copper mine in Chile was another focus area in respect of lowering costs. Even Minas Rio, the Brazilian iron ore project described as Anglo’s single worst investment, is potentially up for an expansion to 26.5m tonnes (Mt) of iron ore a year with the further possibility of 30Mt “...at the right time, and with the right increments”.
All of this will have to get past Pearce, however, who has experience of reining in ebullient CEOs. He was previously CFO at Australian-based iron ore miner Fortescue Metals Group, whose leader, Andrew “Twiggy” Forrest, is known for his barn-storming statements of intent and ambition.
South African risk
“The market is rewarding strength in the balance sheet. Projects will be considered, but we won’t put the balance sheet at risk.”
What’s interesting about the fresh enthusiasm for Anglo American is how relatively little bearing the SA question – described by Cutifani as “the question” – has on the share. Provided the company is paying dividends, shareholders are prepared to support it. In fact, it was the performance of one JSE-listed company in which Anglo has shares – Kumba Iron Ore – that helped Anglo to lower net debt as it did.
Still, the impasse in the industry-government relationship is a source of frustration for Cutifani. “The South African question is the question,” he told analysts. “We are doing all the things we said we would do on corporate side in terms of overheads. We have managed and sold assets that are either small-scale or not long-term. We are doing that type of work.
“But we don’t expect to land a longer term position regarding SA this year,” he added. “There will be so much noise around the leadership debate [of the ANC] and it will be difficult to get anyone to focus. But we like the assets that we have.”
In addition to Kumba, Anglo also owns export coal mines and is the dominant shareholder in Anglo American Platinum. Said Cutifani: “We will continue to improve them and at some point there will be dialogue on the way forward. If you look at the US, it is still arguing about the election result so there’s nothing new about leadership debates of this type.
“But unfortunately, SA is noisier than most.” ■
Stephen Pearce Chief financial officer of Anglo American
Tony O’Neill Technical director of Anglo American